A&L shocks the markets with £185m write down

By Sean Farrell Financial Editor
Thursday, 21 February 2008

Alliance & Leicester admitted regret about its investments in risky assets yesterday as it scrapped its profit target and said it would not compete strongly for new mortgage customers this year.

The bank’s shares fell nearly 7 per cent to their lowest since 2000 after it said £150m of extra funding costs would squeeze margins this year. At one point the shares were down 19 per cent at an all-time low.

The former building society wrote down £185m of structured-credit assets held in its treasury operation, causing full-year profit to fall 30 per cent to £399m.

Richard Banks, who heads A&L’s treasury business, said: “I regret it [the investments] because we have a loss to the P&L of £185m and that has got to be regrettable.” He said when the investments were made in 1999 the entire industry had assumed that there would always be a market for the assets.

Chris Rhodes, the finance director and acting chief executive, said the treasury would now be “a banker, not a profit centre” for A&L. He said banks had been too complacent about risk and had not planned for a combination of shocks hitting the industry at the same time.

Fears about lack of funding hit A&L’s shares last year after Northern Rock was unable to meet its liabilities. A&L eased concerns in November and now has finance from other banks in place into next year. But the increased cost of that funding will cause the net interest margin to shrink to about 1 per cent from 1.16 per cent last year.

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